Definition of Partnership
Article 1767 of the Civil Code defines partnership as a contract whereby two or more persons bind themselves
to contribute money, property, or industry to a common fund with the intention of dividing the profits among
themselves. Two or more persons may also form a partnership for the exercise of a profession.
Essential Elements of a Contract
A contract is simply an agreement, be it verbal or written, having its three essential elements as follows:
contracting parties’ consent, object of the agreement, and cause of the obligation. Consent refers to the
definite offer and absolute acceptance of the offer between parties according to their own free will. The
object of the agreement, in the context of partnership formation, refers to the money, property, and industry
that are to be contributed to the common fund. Lastly, the cause of the obligation, in this context, refers to
the parties’ intent of earning and dividing the profits among themselves.
Characteristics of a Partnership
● Legal Entity - the partnership has a juridical personality, separate and distinct from the partners.
● Mutual Contribution - all partners are required to contribute their object to the common fund.
● Division of Profits and Losses - the essence of a partnership is the sharing/division of profits and
losses.
● Co-ownership of Contributed Assets - partners become co-owners of the assets contributed to the
common fund.
● Mutual Agency - any partner may act as agent (only within his authority) of the partnership in
conducting its affairs.
● Limited Life – the partnership is subject to dissolution in case of admission, retirement, withdrawal,
insolvency, incapacity, or death among any of its partners.
● Unlimited Liability – all partners, except limited partners, are liable beyond their contributions (up to
their personal assets) to the partnership.
● Income Taxes – the partners are subject to 25% of taxable income.
● Partner’s Equity Accounts – all partners have separate equity and withdrawal accounts
Advantages of a Partnership
● Relatively easy and inexpensive to form than a corporation for it only requires a contact upon
formation.
● Better opportunity for obtaining capital than a proprietorship due to the combined personal credit of
the partners.
● Attractive to creditors due to its unlimited liability characteristic.
● “Two heads are better than one” concept – more than one person closely supervises the business.
Disadvantages of a Partnership
● Partners are liable beyond the capital they have invested which means creditors can go after their
personal assets to satisfy their claims after all assets of the partnership have been exhausted.
● A partner may be subject to personal liability for the wrongful acts or omissions of his/her associates.
● Dissolves easily = less stable
● The divided authority among partners may cause conflict.
● There is a constant likelihood of dissension and disagreement when each of the partners has the
same authority in the management of the firm.
Classifications of Partnership
1. As to object:
(a) Universal Partnership of All Present Property - all assets contributed to the partnership at the time
of the constitution and subsequent acquisitions become common partnership assets as well as the
profits which they may acquire therewith
(b) Universal Partnership of All Profits - partnership assets consist of assets acquired during the life of
the partnership and only the usufruct or use of assets contributed at the time of partnership
(c) Particular Partnership - determinate thing for its object, its use or fruits, or a specific undertaking or
the exercise of a profession or vocation
2. As to liability:
(a) General Partnership - consists of partners that are prorate liable up to the extent of their personal
assets
(b) Limited Partnership - consists of partners that are not bound by the obligations of the partnership
and at least one general partner; the word “limited” or “LTD” is added to the name of the
partnership to make its nature known to the public
3. As to duration:
(a) Fixed Term - the term or period for the partnership to exist is agreed upon; upon expiration of the
term or completion of undertaking or venture, the partnership is dissolved unless continued by the
partners
(b) At Will - no term is specified and not formed for a particular undertaking or venture; may be
terminated any time by mutual agreement of the partners or the will of one partner alone
4. As to purpose:
(a) Commercial/Trading - manufacturing, purchasing and selling of goods are the main activities
(b) Professional/Non-Trading - organized for the purpose of rendering services
5. As to legality of existence:
(a) De jure Partnership - one which has complied with all the requirements for its establishment
(b) De facto Partnership - one which failed to comply or is still in the process of complying with the
requirements for its establishment
6. As to representation to others:
(a) Ordinary Partnership - one which actually exists among the partners and also as to third persons
(b) Partnership by estoppel - one which is not an actual partnership but is considered as one only by
those who, by their conduct or omission are precluded to deny or disprove the partnership’s
existence
7. As to publicity:
(a) Secret Partnership - the existence of certain persons as partners are not made known to the public
by any of the partners
(b) Open Partnership - the existence of certain persons as partners are made known to the public by
the members of its firm
Kinds of Partners Commission. A contract of partnership is void, whenever immovable property is contributed thereto, if an
1. As to contribution: inventory of said property is not made, signed by the parties, and attached to the public instrument.
(a) Capitalist Partner - one who contributes capital in cash or property
(b) Industrial Partner - one who contributes industry – labor, skill, talent, service Organizing a Partnership
(c) Capitalist-industrial Partner - one who contributes cash, property, and industry Before a partnership can operate legally, it has to comply first with certain registration requirements which
are summarized below:
2. As to liability:
Place of Registration Requirements for Registration Certificates Issued
(a) General Partner - one whose liability to third persons extend to his separate private property
(b) Limited Partner - one whose liability to third persons is limited only to the extent of his/her capital Securities and Exchange Articles of Co-Partnership SEC Certificate
contribution to the partnership Commission Filled SEC Registration Form

3. As to management: Department of Trade and Articles of Co-Partnership Certificate of Registration of

(a) Managing Partner - one who manages actively the business of the partnership Industry SEC Certificate Business Name (renewable every
(b) Silent Partner - one who does not participate in the management of the partnership affairs 5 yrs)

4. Other classifications:
(a) Liquidating Partner - one who takes charge of the winding up of the partnership affairs upon City/Municipal Mayor’s Office Certificate of Registration of Mayor’s Permit and License to
dissolution Business Name Operate (renewable annually)
(b) Secret Partner - one who takes part in the management of the business but is unknown to the public
(c) Ostensible Partner - one who takes active part in the management of the firm and is known to the Bureau of Internal Revenue SEC Registration BIR Registration No.
Articles of Co-Partnership Partner’s Tax Identification
public
(d) Dormant Partner - both a silent and a secret partner Number (TIN)
(e) Nominal Partner - not an actual partner but represents him/herself as one; made liable as a partner Registration of books, invoices,
for the protection of innocent third persons and official receipts

Social Security System Filled SSS Application Form SSS Certificate of Membership
Contents of The Articles of Co-Partnership
List of Employees SSS Employer ID Number
● Name of the partnership
● The names and addresses of the partners, classes of partners, stating whether the partner is a Philippine Health Insurance SEC Registration PhilHealth Employer Number
general or a limited partner Corporation Employer Data Record or ERI (PEN) and the Certificate of
● The effective date of the contract Form Registration
● The purpose or purposes and principal office of the business Business Permit or License PhilHealth Identification Number
● The capital of the partnership stating the contributions of individual partners, their description and (PIN)and Member Data Record
agreed values (MBR) for concerned employees
● The rights and duties of each partner
● The manner of dividing net income or loss among the partners, including salary allowance and Home Mutual Development Fund SEC Registration HMDF Certificate of Membership
interest on capital (PAG-IBIG Fund) Articles of Co-Partnership HMDF Employer ID Number
● The conditions under which the partners may withdraw money or other assets for personal use
● The manner of keeping the books of accounts
RA 9298 Section 28 - Limitation on the Practice of Public Accountancy
● The causes for dissolution
- CPAs shall first obtain a Certificate of Accreditation from the Professional Regulatory Board of Accountancy
● The provision for arbitration in settling disputes
before they can be allowed to practice public accountancy after obtaining a minimum of 3 years of meaningful
experience.
SEC Registration
- The registration shall be valid for a period of 3 years and may be renewed every 3 years on or before
Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall
September 30 in the year of expiry. The registration of applicants approved during any month of the year shall
appear in a public instrument, which must be recorded in the Office of the Securities and Exchange
expire on December 31 in the 3rd year of its approval. To summarize: Renewal Date - on or before Sep 30,
Expiry Date - on or before Dec 31.
- The Securities and Exchange Commission shall not register any corporation organized for the practice of
public accountancy.
Section 28 (A) - Meaningful Experience - a meaningful experience shall be considered as satisfactory
compliance with the requirements of Section 28 of RA 9298 if it is earned in
(a) Commerce and Industry - shall include significant involvement in general accounting, budgeting, tax
administration, internal auditing, liaison with external auditors, representing his/her employer
before government agencies on tax and matters related to accounting or any other related functions;
or
(b) Education/academe - shall include teaching for at least 3 trimesters or 2 semesters subjects in
financial accounting, business law and tax, auditing problems, auditi ng theory, financial
management, and management services. Provided, that the accumulated teaching experience in
these subjects shall not be less than 3 school years; or
(c) Government - shall include significant involvement in general accounting, budgeting, tax
administration, internal auditing, liaison with the Commission on Audit, or any other related
functions; and
(d) Public Practice - shall include at least one year as audit assistant and at least two years as auditor in
charge of audit engagement covering full audit functions of significant clients
Form of Practice Practice Name Considerations Example Naming Syntax
Sole Proprietorship Individual Julienne Ramirez, CPA
The capital account is credited to record original and additional investment by a partner as well as their
respective share in profits from operations. It is then debited to record permanent withdrawals, share in
losses from operations, as well as the debi t balance of the withdrawal account as a closing entry.
The withdrawal account is debited for personal (temporary) withdrawals by a partner. The shares in profits or
losses could also be debited and credited in this account but the pr eparer may do so directly to the capital
account.
Cash contributions are recorded at face value, non-cash contributions are recorded at agreed value and if
there is none, fair market value will be used. Liabilities are recorded at pr esent value and if industry is
contributed, a memorandum entry is prepared.
Individuals Allowed To Form A Partnership
1. Two or more individuals with no existing business
2. A proprietor and an individual/s with no existing business
3. Two or more proprietors
4. Admission/retirement of a partner
Stages of Accounting for Partnership Formation (if old books were maintained)
1. Adjustment of assets and liabilities from their book value to the agreed value or fair market value wherein
the increases and decreases of asset, liability, and nominal accounts are reflected in the capital account.
2. Closing the books of the liquidating business
3. Transferring the adjusted assets and liabilities to the new books of the partnership

Firm Julienne Ramirez and Associates

Partnership 2 partners Julienne Ramirez and Henry

Cavill, CPA

3 partners Julienne Ramirez, Henry Cavill &

CPAs

More than 3 partners SGV & Co.

RA 9298 Section 33 - Seal and Use of Se al - All registered certified public accountants shall obtain and use a
seal of design prescribed by the board bearing the registrant’s name, registration number, and title. The
auditor’s report shall be stamped with the said seal, indicating therein his/her current Professional Tax Receipt
(PTR) number, date/place of payment when filed with government authorities or when used professionally.
Upper portion of the circle - proprietor/firm name, or partnership name, middle portion of the circle - CPA, or
CPAs, lower portion of the circl e CPA registration number.

Accounting for Partnership Formation

In a partnership, there should be as many capital accounts and as many drawing accounts as there are
partners i.e. one capital account and one drawing account for each partner.